Don’t repeal the medical device tax (yet)

Repeal Obamacare first.

Last fall, as one of its last acts, the outgoing House of Representatives passed a bill to repeal the medical device tax. This year, leaders in the new Congress are signaling their intention to put that bill on President Obama’s desk. It’s a bad idea.

A 2.3 percent federal excise tax on sales of medical devices was included in the Affordable Act of 2010 to help pay for Obamacare. The tax has been collected since 2013, and the Joint Committee on Taxation predicts it will reduce the deficit by $26 billion over ten years.

Is it a good tax? Not particularly. It increases the cost of cardiac stents, artificial limbs, and joint replacements, for example. Manufacturers pass its costs along to patients and their insurance plans. But should it be repealed? No. Not yet. For three reasons.

First, contrary to industry claims, the tax is not heavy enough to imperil patients’ health or pose a significant burden on employment or medical innovation. Every tax has negative effects, to be sure; but as excises go, 2.3 percent of sales is modest. And as Senate Minority Leader Harry Reid (D-Nev.) told The Hill, the device industry is “doing extremely well with ObamaCare.”

Second, repealing the tax now would be unfair, because the law it helps fund, Obamacare, burdens all of us, not just medical device makers.

Third, and perhaps most importantly, repealing the tax before we repeal Obamacare would weaken the coalition to replace the Affordable Care Act with better reforms that can actually make healthcare more affordable (and thus get more people covered).

The latest Kaiser monthly tracking poll shows that, as always, the public prefers affordability over “getting more people covered” as a goal of reform. That should have been the goal in 2010, and it should be the goal today.

We need another round of health reform. Obamacare is still deeply controversial more than five years after it was rammed through Congress on a strictly partisan basis. Opposition to the ACA remains strong, with every respectable poll showing opposition somewhere between 40 and 50 percent. Indeed, in all of the hundreds of polls done on the ACA over the years, I’ve never seen one that showed majority public support.

And no wonder. Although the ACA has contributed to the recent reduction in the number of the uninsured, mostly due to the Medicaid expansion, this coverage gain has come at a cost. Contrary to its title, the Affordable Care Act has imposed upon millions of Americans higher premiums and deductibles, while also driving many of us into “skinnier” provider networks with fewer doctors and hospitals.

Shouldn’t we give the public relief before we think about helping particular groups of Americans or industrial interests?

As a former employee of a U.S.-based global medical device manufacturer, I know the device industry, and I love it. But I was saddened by the way its Washington trade group, AdvaMed, joined the Beltway cabal to force Obamacare on us, lamely accepting the tax on its products as a “pay-for” rather than making a principled stand for patients.

Since the law’s enactment, AdvaMed has spent $30 million lobbying to repeal the device tax. That’s understandable. They’re in business to make money. But as Ken Hoagland of Restore America’s Voice, a grassroots group opposed to government-run healthcare, has observed, congressional leaders plan to give AdvaMed what amounts to privileged treatment:

Senate Republicans who won a majority because of Obamacare anger now seem ready put business lobbyists ahead of voters in tackling the Affordable Care Act. . . .

[T]he industry that never fought against Obamacare’s passage is poised to get the first legislative relief from the law while voters who remain angry that they are paying the price have to wait.

I’d have more sympathy for my former industry if it were spending all those millions to secure repeal of Obamacare’s mandates and regulations, or at the very least the individual mandate at its heart. According to the nonpartisan Congressional Budget Office, repealing the individual mandate would save taxpayers more than $300 billion over ten years. With that kind of money, we could easily pay for a $26 billion tax cut. And of course repealing the mandate would increase the freedom of 320 million Americans.

There are plenty of taxes in Obamacare. There’s a tax on health insurers, a tax on tanning salons, a tax on “Cadillac” health plans, a tax on exchange health plans, a tax on Blue Cross plans, a tax on name-brand drugs, a tax on investment income, a tax on wage income, even a tax on charitable hospitals.

Assuming we’d like to get rid of all those taxes (and I would), we have a choice. We can repeal them singly, or as a group. Repealing them singly would weaken the existing coalition for real reform—reform that reduces costs, improves quality, and saves lives by putting patients in charge. Every industry we let off the hook is one less industry with a stake in a better health care system for all of us.

Don’t repeal the medical device tax, yet.

Dean Clancy, a former senior executive in the medical device industry, and former senior health policy official in the White House and Congress, writes on U.S. budget and constitutional issues. Follow him at deanclancy.com or on twitter @deanclancy.

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Welcome to deanclancy.com, a site focused on current policy debates, with an emphasis on health care, budget, and tax reform issues, and American renewal.

Dean Clancy is a policy analyst, opinion writer, consultant, and public speaker with more than twenty years’ experience as a high-level policy advisor in Congress, the White House, and the health care industry.

Clancy is a partner at Adams Auld LLC and president and founder of HSAs for All, and serves as a volunteer advisor to the Compact for America Educational Foundation and a board member of several organizations including the Default Clock Committee and Opportunity Solutions Project (an affiliate of the Foundation for Government Accountability).

Clancy describes himself as a ‘decentralist.’ He opposes monopoly, public as well as private, and stands for the little guy and common sense.